France v. Bernstein, 43 F.4th 367 (3d Cir. 2022). As Judge Jordan said in his opinion for the Third Circuit today, “[i]t’s a steep climb to vacate an arbitration award.” Under the Federal Arbitration Act, 9 U.S.C. 10(a) (“FAA”), there are only four grounds for doing so: “(1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators, or either of them; (3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” Today’s case involved a claim that an arbitration award was procured by fraud.
As Judge Jordan colorfully summarized it, “Like something out of the film Jerry Maguire, these two sports agents fought over Bernstein’s claim that France improperly organized a money-making event for a football player who was then one of Bernstein’s clients, all in an effort to induce that player to fire Bernstein and hire France. The matter went to arbitration, and, in pre-hearing discovery, France denied possessing any documents pertaining to the event. He flatly denied having any involvement in the event at all. The end of this tale hasn’t been told yet, but this much is now clear: France lied to Bernstein and the arbitrator, though his lies were not uncovered until after the arbitration was decided in his favor.”
The District Court confirmed the arbitration award and denied Bernstein’s motion for reconsideration. On his appeal, the Third Circuit today reversed and remanded for entry of an order vacating the arbitration award. Bernstein thus overcame the “strong presumption under the [FAA] in favor of enforcing arbitration awards.”
Bernstein, Judge Jordan said, had to “make a three-part showing: first, that there was a fraud in the arbitration, which must be proven with clear and convincing evidence; second, that the fraud was not discoverable through reasonable diligence before or during the arbitration; and, third, that the fraud was materially related to an issue in the arbitration.” Bernstein had the burden of proof, and he carried it successfully.
“Perhaps the easiest conclusion in this case, even under a clear-and-convincing-evidence standard, is that France committed fraud.” It was “plain that France both lied under oath and withheld important information demanded in discovery.” Among other things, he eventually said that he would produce responsive documents in his possession, but he then claimed there were none even though, as discovery in a somewhat parallel federal litigation revealed, he did possess such documents.
Bernstein could not have discovered France’s fraud with reasonable diligence. He was entitled to rely on France’s repeated “representations without launching a separate fact-checking investigation.” Judge Jordan cited MidAmerican Energy Co. v. International Brotherhood of Electrical Workers Local 499, 345 F.3d 616, 618-19 (8th Cir. 2003), and said that, like the losing party there, Bernstein “should not be penalized for accepting his opponent’s representations.”
“Finally, the fraud was material, and obviously so.” The arbitrator concluded that Bernstein had no evidence in his favor. But that would not have been so had France not lied and withheld documents that might have been seen as supportive of Bernstein’s claims. Though there was also evidence to support France’s position, “it is clear that the arbitrator’s fact-finding task would have looked much different had Bernstein possessed the concealed evidence to support the core allegation in his grievance. That is enough for us to see a “nexus between [France’s] fraud and the basis for the [arbitrator’s] decision,” quoting Int’l Bhd. of Teamsters, Local 519 v. United Parcel Serv., Inc., 335 F.3d 497, 503 (6th Cir. 2003). Accordingly, the Third Circuit reversed and remanded for entry of an order vacating the arbitration award.
The NFL player involved in the dispute between these two agents was Kenny Golladay, then a member of the Detroit Lions. New York Giant fans will note that, in the meantime, he has become a Giant, and wears “Big Blue” rather than the Lions’ light blue.